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The opinions expressed are as of July 2018 and may change as subsequent conditions vary.
Investors are increasingly turning to convenient, low-cost investment solutions
such as index funds to help save for retirement and other important financial
goals. This trend has fueled the growth of the asset management industry and led
to questions around what impact, if any, asset managers should have on the
companies they invest in. How do asset managers approach investment
stewardship and to what degree do they factor in environmental, social, and
governance (ESG) considerations?
For BlackRock, the answers are inseparable from our role as a fiduciary to our
clients’ assets. Our mission is to create a better financial future for our
clients and our number one focus is on generating long-term sustainable
performance. Just as we expect the companies in which we invest to understand
the macroeconomic and industry trends in which they operate, we also believe
that a company’s awareness of regulatory and societal trends helps drive long-
term performance and mitigate risk.
In this ViewPoint, we review the roles of the stakeholders in the investment
stewardship ecosystem, including asset managers, asset owners, index
providers, and proxy advisors. We then explore the different approaches to
investment stewardship, including BlackRock’s engagement-first approach. Our
overarching goal is to encourage companies to deliver long-term, sustainable
growth and returns for our clients. In addition, we highlight publicly available data
on the voting records of US-registered mutual funds, which demonstrate
considerable variability in voting patterns among asset managers. At BlackRock,
we take an engagement-first approach where proxy voting is only one component
of our process. We focus primarily on the US corporate governance landscape,
but similar practices exist globally.
VIEWPOINT
JULY 2018 The Investment
Stewardship Ecosystem
Barbara Novick
Vice Chairman
Table of Contents
Key Observations 2
Role of Key Stakeholders 3
What is Investment
Stewardship? 6
BlackRock’s Approach to
Investment Stewardship 6
Data-Driven Discussion
of Voting Records 10
Understanding ESG
Considerations 11
Conclusion 14
Alexis Rosenblum
Global Public
Policy Group
Michelle Edkins
Global Head of
Investment
Stewardship
Your company’s strategy must articulate a path to achieve
financial performance. To sustain that performance, however,
you must also understand the societal impact of your business
as well as the ways that broad, structural trends – from slow
wage growth to rising automation to climate change – affect
your potential for growth.”
“
Larry Fink, BlackRock, Annual Letter to CEOs, January 2018
Tom Clark
Head of Global
Public Policy,
Americas
2
Key Observations
1. The roles and responsibilities of asset owners, asset managers, index providers, and proxy advisors are often
conflated in discussions around investment stewardship.
2. Asset owners are the economic owners of assets. They make critical decisions about how their money is
invested, including:
a. Establishing investment policies (e.g., investment objectives, asset allocation policies, and approach to
sustainability, or ESG matters).
b. Whether to manage their assets internally or outsource to an external asset manager.
c. How to handle their responsibilities as public company shareholders (e.g., proxy voting policies, reliance on
proxy advisors, and/or insourcing versus outsourcing of investment stewardship activities).
3. Asset managers are fiduciary agents, required to act in the best interest of their clients, the asset owners.
a. There are many different business models of asset management, with companies offering a wide range of
products to meet the needs of various clients.
b. Likewise, there is a wide range of approaches to investment stewardship across the asset management industry.
c. Asset managers do not participate directly in the economic results of companies in which they invest on behalf
of clients.
d. Traditional asset managers (e.g., mutual fund managers) generally do not take seats on public company boards.
4. Index providers develop index construction rules that drive the inclusion of securities in indexes.
a. Index providers offer both broad market and specialized indexes.
b. Index providers have developed indexes that exclude certain exposures (e.g., tobacco, controversial weapons)
as well as suites of ESG-oriented indexes in response to demand from asset owners.
c. ESG indexes have their own specific index inclusion (or exclusion) rules.
5. Proxy advisory firms provide data, voting recommendations, and vote submission technology to their clients, who
may use all or just some of the available services.
6. Investment stewardship encompasses engagement with companies and the voting of proxies.
a. Investors (inclusive of asset owners and asset managers) approach investment stewardship in different ways.
Some rely heavily on proxy advisor recommendations, while others emphasize various forms of engagement.
b. In line with our fiduciary responsibility, BlackRock’s number one focus is on generating long-term sustainable
performance for our clients.
c. BlackRock takes an engagement-first approach to investment stewardship, emphasizing direct dialogues
with companies on issues that we believe have a material impact on financial performance.
d. BlackRock has never initiated a shareholder proposal on any company’s proxy statement, initiated a proxy
fight, or led an activist effort against management; and BlackRock has never sought a seat on a public
company board as part of its stewardship activities.
e. BlackRock is committed to providing transparency. Our engagement priorities, voting guidelines, and voting
records are available on our website.
7. Proxy Voting Data
a. Proxy voting statistics include both management proposals and shareholder proposals. In 2017, there were
nearly 28,000 ballot items on proxies of Russell 3000 companies, of which more than 27,000 were
management proposals, the majority of which are routine.1
b. Asset managers can and do take different views on the same proposal.
c. All equity assets managed by BlackRock may not be voted the same way on any given issue.
8. Any decision about a company’s strategic direction is up to the company’s management, its board, and the majority
of shareholders.
Roles of Key Stakeholders
Who are the relevant stakeholders in the investment
stewardship ecosystem? Asset owners, asset managers,
index providers, and proxy advisors each play important and
distinct roles.
Asset Owners
Asset owners are the economic owners of assets that are
invested in the real economy. Examples of asset owners are
pension plans, insurance companies, official institutions,
banks, foundations, endowments, family offices, and
individual investors, each of which has different investment
objectives and constraints.2 Asset owners (inclusive of both
institutional and individual investors) can invest in company
stock either by purchasing that stock directly or by hiring an
asset manager to invest on their behalf. When an asset
owner utilizes the investment management services of an
asset manager, such investments can be structured as
separate accounts3 or commingled investment vehicles
(e.g., mutual funds).
Asset owners own the investment risk associated with their
investments, as well as any gains or losses in the value of
those investments. Exhibit 1 provides a list of the largest US
pension plan sponsors, which reflect some of the largest US-
based asset owners. Even where an asset owner
outsources management of all or a portion of its assets to an
asset manager, asset owners make strategic decisions
about their portfolios including asset allocation, portfolio
objectives, constraints, and investment strategy. As
discussed in this paper, asset owners can also establish
sustainability (e.g., ESG) policies and decide how to vote in
public companies. Asset owners may utilize the advice of
investment consultants or other types of advisors in making
these strategic decisions.
Asset Managers
Asset managers are professional investment firms that can
be hired by asset owners to manage all or a portion of the
asset owner’s portfolio. It is estimated that about three-
quarters of the world’s financial assets are managed directly
by asset owners, whereas about one-quarter are managed
by asset managers.4 Asset managers are fiduciaries
required to act in the best interest of their clients.
Importantly, even when an asset manager is managing
assets on behalf of an asset owner, the asset owner
continues to be the economic owner of the assets. Since
asset managers are not the economic owners of the assets
under their management (AUM), asset managers do not
participate directly in the economic results of companies in
which they invest. Instead, asset managers earn a fee based
on the amount of AUM.5 These fees are typically structured
as a small percentage of the total value of the client’s
portfolio. Exhibit 2 lists the largest asset managers by AUM
as of December 2017, and shows the amount of assets
invested in equities.
3
Exhibit 1: Largest US Pension Plan Sponsors
Name
Total plan
assets
($ billions)
1 Federal Retirement Thrift Investment Board $531.5
2California Public Employees' Retirement
System$336.7
3California State Teachers' Retirement
System$216.2
4 New York State Common Retirement Fund $201.2
5 New York City Retirement Systems $189.8
6 State Board of Administration of Florida $167.9
7 Teacher Retirement System of Texas $146.3
8 The Boeing Co. $121.7
9New York State Teachers' Retirement
System$115.6
10 AT&T Inc. $113.6
Source: Pensions & Investments. As of Sep. 30, 2017.
Firm name
Total AUM
($ Billions)
Equity AUM*
($ Billions)
1 BlackRock $6,288 $3,364
2 Vanguard Group $4,940 $3,508
3 State Street Global Advisors $2,782 $1,836
4 Fidelity Investments $2,449 $1,482
5BNY Mellon Investment
Management$1,893 $473
6 Capital Group $1,778 $1,369
7J.P. Morgan Asset
Management$1,714 $561
8 Amundi $1,709 $279
9 Goldman Sachs $1,494 $321
10 Prudential Financial $1,394 $376
11 PIMCO $1,335 $40
12Legal & General Investment
Management$1,330 $359
13 Wellington $1,080 $470
14 T. Rowe Price $991 $755
15 Nuveen $970 $353
Exhibit 2: Largest Global Asset Managers
Total AUM and equity AUM source: Pensions & Investments, as of
December 31, 2017.
*Includes separate accounts, mutual funds, and ETFs.
Index Providers
Index providers are responsible for creating and maintaining
index methodologies that are designed to reflect the
composition of a basket of securities that the index provider
believes are representative of a given market. Equity
indexes may focus on a capitalization range (e.g., large
cap), a regional area (e.g., global, US, emerging markets), a
sector (e.g., industrials, financials, consumer goods, etc.)
and increasingly, factors (e.g., value, momentum). Indexes
are often utilized as a performance reference for asset
owner portfolios, commingled investment vehicles and
separate accounts. Indexes are privately owned and
licensed by the relevant index provider to users of indexes –
typically asset owners, asset managers, or other financial
intermediaries. Index providers define the index inclusion
rules, which determine the securities that comprise
each index. The largest equity index providers are MSCI,
S&P Dow Jones, and FTSE Russell. Exhibit 3 highlights
some of the most commonly referenced indexes.
competitive and innovative marketplace. As such, index
providers seek to create indexes that can compete for
adoption. Increasingly, asset owners are seeking indexes
that reflect ESG information as a component of the index
construction methodology. In response to this demand,
index providers have developed ESG-oriented indexes,
including S&P Dow Jones Sustainability Indexes,
FTSE4Good Indexes, and MSCI ESG indexes. Examples of
various types of sustainability-related indexes are described
in Exhibit 4.
4
EMEA
Financial Times Stock Exchange (FTSE) All-Share
Financial Times Stock Exchange (FTSE) 350
Morgan Stanley Capital International (MSCI) Europe
SIX Swiss Performance Index
US
Standard & Poor's (S&P) 500
Standard & Poor's (S&P) MidCap 400
Dow Jones
Russell 2000
Russell 3000
APAC
CSI 300
Hang Seng (HSI)
Nihon Keizai Shimbun (Nikkei) 225
Tokyo Stock Price (TOPIX) Index
Exhibit 3: Examples of Common Indexes
Source: Morningstar, December 2016.
In choosing among market indexes, asset owners typically
consider their investment objectives and requirements, as
well as the innovation and incremental improvements in the
construction of each index offered by index providers. The
ability to choose one market index over another promotes a
Type of Index Description
ESG Indexes
Indexes designed for investors
seeking exposure to companies
with stronger sustainability profiles
(often measured by ESG scores)
with relatively low tracking error to
the underlying equity market.
Socially Responsible
Investing (SRI) Indexes
& Exclusionary Screens
Indexes that screen out or exclude
certain types of companies (e.g.,
ex tobacco, ex firearms, etc.).
Environmental Indexes
Indexes designed to support
various low carbon, fossil fuel, and
thematic strategies.
Exhibit 4: Examples of Sustainability-Related
Indexes
Source: MSCI, available at
https://www.msci.com/documents/10199/242721/MSCI_ESG_Indexes.pdf/
42ef2d23-c4ef-4672-8476-52bbb8c98cca. For illustrative purposes only.
Not comprehensive.
Indexes are rebalanced on a regular basis. Each index has
its own methodology for rebalancing that is determined by
the index provider. For example, the FTSE Russell Indexes
are rebalanced annually. The most recent FTSE Russell
index rebalancing was completed at the end of June. The
2018 FTSE Russell rebalance resulted in more than
$39 billion in equities traded during Nasdaq’s closing auction
on the day of the rebalance.6 The S&P Equity Indexes are
rebalanced on a quarterly basis. MSCI reconstitutes semi-
annually in May and November to recalibrate the index
universe, and rebalances quarterly to reflect significant
moves of securities within the index. The MSCI May semi-
annual review led to approximately $23.9 billion in buys and
sells for the developed markets indexes and $11.2 billion for
the emerging markets indexes.7
Proxy Advisors
Proxy advisory firms are a critical component of the proxy
voting system, providing research and recommendations on
proxy votes. Proxy advisory firms also provide voting
infrastructure and some provide consulting services to public
companies. The first dedicated proxy advisory firms were
founded in the 1980s. Today, there are two global firms and
numerous regional firms, as shown in Exhibit 5. The
dominant firm in terms of market share is Institutional
Shareholder Services (ISS).
Both asset owners and asset managers use proxy advisory
firms in different ways and rely on them to a different extent.
Some investors (inclusive of asset owners and asset
managers) have their own in-house proxy voting and
stewardship functions that use the research from proxy
advisory firms as an input into their investment stewardship
process, whereas others rely more heavily or even
exclusively on the recommendations of proxy advisors for
deciding how to vote. Given the large number of votes that
take place during proxy season each year, many investors
rely heavily on the recommendations of proxy advisors to
5
Index Inclusion and the Unequal Voting Rights Debate
Recently, several index providers have grappled with
the treatment of companies with unequal voting rights
structures in their indexes. Following are highlights of
decisions made by S&P Dow Jones, FTSE Russell,
and MSCI regarding inclusion of companies with
unequal voting rights in their indexes.
In July 2017, S&P Dow Jones announced that it would
exclude companies with multiple-share class structures
from inclusion in the S&P Composite 1500 and
component indices (including the S&P 500, S&P
MidCap 400, and S&P SmallCap 600). Companies that
had already been included in those indexes were
grandfathered.8
FTSE Russell also announced in July 2017 that it
would begin excluding from all standard FTSE Russell
Indexes, companies that have less than 5% voting
stock held by unrestricted public shareholders. For
existing index constituents, this change will become
effective in September 2022, effectively permitting a
temporary grandfathering of existing index
components.9
Likewise, in November 2017, MSCI announced its
decision to temporarily treat any securities of
companies with unequal voting structures as ineligible
for certain of its indexes. Given feedback from clients,
in January 2018 MSCI initiated a consultation that
proposed adjusting company weightings based on the
companies’ public voting rights without grandfathering
existing companies.11 As part of the investment
stewardship process, BlackRock and others submitted
letters to MSCI expressing concerns or support for the
proposed approach. BlackRock’s Open Letter
Regarding Consultation on the Treatment of Unequal
Voting Structures in the MSCI Equity Indexes is
available on our website. MSCI recently announced
their decision on inclusion rules has been delayed until
October 2018.12
In our view, policy makers, not index providers should
set corporate governance standards. While we agree
with the sentiments expressed by index providers that
“one share for one vote” is the preferable structure for
publicly-traded companies, we believe that this issue
should be addressed by regulators. In our view, broad
market indexes should be as expansive and diverse as
the underlying industries and economies whose
performance they seek to capture. In constructing
indexes, index providers should make every effort to
reflect the investable marketplace in the broad
benchmark indexes that they produce. We believe that
if index providers want to address the dual share class
issue within their index methodologies, they should do
so by utilizing methodologies that take into account
voting rights as part of their ESG index series, since
this is clearly a “G” issue.
Data as per proxy firms’ own websites, retrieved Jun. 21, 2018. Number of
clients likely involves double-counting as some asset managers and asset
owners are clients of more than one proxy advisory firm.
1. Government Accountability Office, Proxy Advisory Firms’ Role in Voting
and Corporate Governance Practices (Nov. 2016).
2. Institutional Shareholder Services (ISS) is owned by Genstar Capital.
3. Glass Lewis is owned by Ontario Teachers’ Pension Plan Board
(OTPP) and Alberta Investment Management Corp. (AIMCo).
Firm Founded Domicile Clients
ISS2 1985 US 1,900+ clients
Glass Lewis3 2003 US 1,300+ clients
IVIS 1993 UK
PIRC 1986 UK
Proxinvest 1995 France
Egan Jones 2002 US
InGovern 2010 India
Exhibit 5: Examples of Proxy Advisory Firms
GL
OB
AL
RE
GIO
NA
L
determine their votes, as they may not have the resources to
individually analyze each proposal in detail. As a result,
proxy advisors can have significant influence over the
outcome of both management and shareholder proposals.13
Recently, proxy advisory firms have attracted the attention of
policy makers who want to understand how proxy advisors
determine their voting recommendations and manage
conflicts of interest. Some policy makers have called for
legislation or regulation that would require greater
transparency and enhancements to proxy advisors’
processes for determining voting recommendations.14
What is Investment Stewardship?
Investment stewardship refers to engagement with public
companies to promote corporate governance practices that
are consistent with encouraging long-term value creation for
shareholders in the company. Engagement and voting
provide shareholders an opportunity to express their views.
When an asset owner invests directly in company stock, the
asset owner makes its own decisions as to whether and how
to vote their shares, as well as any other investment
stewardship activities they choose to undertake. Asset
owner proxy voting decisions can be based solely on the
asset owner’s independent analysis, or can be based on the
research and recommendations of a proxy advisory firm.
When an asset manager is involved, the responsibility for
investment stewardship is often delegated to the asset
manager by the asset owner. Many asset owners, though,
choose not to delegate their investment stewardship
activities to their asset manager(s). For example, at
BlackRock, we have many equity separate account clients
who do not delegate voting authority to BlackRock. In the
case of mutual funds and exchange-traded funds (ETFs),
each fund’s board of directors has oversight of the asset
manager, including its voting policies. Like asset owners,
asset managers may use proxy advisor research as part of
their investment stewardship activities.
Proxy voting is often associated with investment
stewardship, however, voting is not the only form that
stewardship can take. Engagement can also be an important
component of asset owners’ and asset managers’
stewardship activities. Engagement can include one-on-one
meetings with representatives of company boards and/or
management, writing letters to companies, and a variety of
other activities. Different investors take different approaches
ranging from simply following the voting recommendations of
proxy advisors. The approach often depends on the
investment strategy, objectives, time horizon, and the
investor’s view as to material drivers of financial
performance. For the most part, the focus of investment
stewardship activities is governance-related (e.g.,
board composition, the board’s oversight role). In the sidebar
discussion on page 11, we explain the differences between
activist investors, active investors, and active engagement
by index fund managers.
Regulations and stewardship codes often require asset
managers to vote proxies on companies in which they invest
on behalf of clients to the extent their clients have delegated
voting authority to the asset manager. For example, in the
US, both the Securities and Exchange Commission (SEC)
and the Department of Labor (DoL) have issued guidance
stating that as fiduciaries, asset managers must vote proxies
when doing so is in the best interests of their clients.15
Further, the forthcoming EU Shareholder Rights Directive
will require EU-based asset managers, pension funds and
insurers to disclose “the voting rationale for their most
significant votes.”16
Many have asked how to measure the impact of investment
stewardship. The simple answer is that investment
stewardship is a deliberate undertaking that is designed to
encourage long-term structural improvements, not short-
term, quick results. It is unlikely, for example, that
investment stewardship will result in quarterly changes in
corporate behavior–and it would be a mistake to judge the
impact along these lines. A good way to think about the
impact of investment stewardship is to look at longer-term
structural changes on key, material governance issues. Ten
years ago, for example, it was not uncommon to find a sitting
CEO in a director seat on multiple public companies.
Likewise, it was considered reasonable for an independent
director to serve on six or more boards. Today, these norms
have shifted as active investment stewardship efforts on
these issues have contributed to improvements in corporate
governance at public companies.
BlackRock’s Approach to Investment
Stewardship
BlackRock’s approach to investment stewardship is driven
by our role as a fiduciary to our clients, the asset owners. In
this role, we look to engage constructively with company
management to maximize the value of our clients’
investments in each individual company. BlackRock has had
an in-house team dedicated to investment stewardship since
its inception. The team is organized regionally, reflecting the
different regulatory requirements, corporate governance
practices, and client expectations in different jurisdictions.
BlackRock has over 30 professionals in this area, which
represents the largest dedicated investment stewardship
capability in the asset management industry to our
knowledge, and we have announced plans to continue to
invest in this function.17
6
Transparency and Compliance
BlackRock is committed to transparency. In all regions we
publish our engagement priorities, our voting guidelines, our
voting record, and occasionally provide detailed vote
bulletins.18 Every quarter, for each region, we report on our
voting and stewardship engagements. We also publish our
full voting record and summary voting and engagement
statistics annually.19
BlackRock complies with its fiduciary and regulatory
responsibilities to its clients with respect to proxy voting, and
complies with market-level stewardship codes where
applicable. In addition, BlackRock has signed on to several
statements on stewardship, which include committing to
undertaking activities to monitor the corporate governance of
portfolio companies.20 Similarly, BlackRock has been a
signatory to the United Nations-supported Principles for
Responsible Investment (PRI) since 2008, and produces a
report annually that is assessed by the PRI.21
Engagement
Engagement is core to our stewardship program as it helps
us assess a company’s approach to governance in the
context of its specific circumstances. Engagement
conversations in the US are generally held with
management and sometimes with independent board
members. Our Investment Stewardship team engages
extensively with companies around the world on issues that
we have identified as material to companies’ long-term
financial sustainability, and votes on behalf of our clients and
funds that have delegated voting authority to BlackRock. We
engage with companies for four main reasons:
• We are preparing to vote at the company’s shareholder
meeting and need to clarify the information in company
disclosures;
• There has been an event at the company that has
impacted its performance or may impact long-term
company value;
• The company is in a sector or market where there is a
thematic governance issue material to shareholder value;
• Our corporate governance risk analysis has identified the
company as lagging its peers on ESG matters that may
materially impact economic value.
In 2017, our Stewardship team had nearly 1,500 direct
company engagements globally. Exhibit 6 provides an
overview of our engagement meetings in 2017, highlighting
that the majority of engagement meetings are focused on
governance issues. In addition, over the past several years,
we have written letters to company CEOs emphasizing the
importance of a long-term approach. In these letters, we
have asked company management to articulate their long-
term growth strategies, to ensure proper governance, and to
address other material issues relevant to their business
models.
BlackRock’s Investment Stewardship team seeks to engage
in a constructive manner with companies. Our aim is to build
mutual understanding and to ask probing questions, not to
tell companies what to do. Where we believe a company’s
business or governance practices fall short, we explain our
concerns and expectations, and then allow time for a
considered response. As a long-term investor, we are willing
to be patient with companies when our engagement affirms
they are working to address our concerns. However, our
patience is not infinite – when we do not see progress
despite ongoing engagement, or companies are insufficiently
responsive to our efforts to protect the long-term economic
interests of our clients, we will exercise our right to vote
against management recommendations.22
Given the increased level of interest in our Stewardship
team’s work, we decided to publish our 2018 Engagement
Priorities. They are intended to provide more information to
clients, companies and other relevant stakeholders on
issues our team will focus on over the period and how we
will engage with companies. Engagement on these themes,
particularly where we believe a company could evolve its
practices, may require several meetings, so we maintain our
focus for at least two years. We also engage on a range of
other governance and voting matters as they arise, including
special situations, such as mergers or other control issues.
The sidebar on the following page includes case studies
around our recent engagements in the pharmaceutical and
energy sectors.
7
Most engagement conversations cover multiple topics. Our engagement
statistics reflect the primary engagement topic for which the meeting was
called. Source: BlackRock Investment Stewardship Report: 2017 Voting
and Engagement Report, available at
https://www.blackrock.com/corporate/literature/publication/blk-2017-
annual-voting-and-engagment-statistics-report.pdf.
Region Environmental Social Governance
Americas 50 53 408
Europe, Middle
East, Africa36 37 456
Asia-Pacific Region 37 33 374
Total 123 123 1,238
Exhibit 6: Breakdown of Engagement Meeting
Topics (July 1, 2016 to June 30, 2017)
8
Examples of BlackRock’s Investment Stewardship Engagements
Our engagement can be quite varied depending on the
industry and region. Below we discuss two recent
examples of engagement in the pharmaceutical and
energy sectors. In all cases, we act in our fiduciary
capacity to ensure that the long term value of our
clients’ assets were adequately safeguarded.
Pharmaceutical Industry Engagement
In light of the risks presented to certain pharmaceutical
companies stemming from the opioid epidemic in the
US, we engaged with companies across the
pharmaceutical sector about their enterprise risk
management practices and anticipated public policy
changes that might affect their long-term strategy.23
For the most part, these engagements led to mutual
understanding about how companies were addressing
these risks to their businesses. For those companies
that are in the business of manufacturing opioids, many
had taken steps to enhance oversight of supply chain
risks, had elevated the issue to a board-level risk
committee, and had instituted more robust remedial
measures.
However, one company engaged in the development,
sale, and licensing of products for pain relief had not, in
our view, demonstrated that the board and
management took a sufficiently robust approach to
opioid risks. Based on our engagement, we believed
that it was unlikely that the company would improve its
reporting such that investors could understand how the
company would mitigate these material risks.
Accordingly, we supported a shareholder proposal that
called for a report on the governance measures the
company had implemented "to more effectively monitor
and manage financial and reputational risks related to
the opioid crisis in the United States, given [its]
manufacturing and past sale of opioid medications.”
The proposal received approximately 62% support and
our engagement is ongoing.
Energy Sector Engagement
We have similarly engaged companies across the
energy sector, in the US and internationally. In the
second quarter of 2017 we proactively engaged with 27
US companies on carbon-related risks; 21 of which had
shareholder proposals seeking improved disclosure
around climate change. Regardless of whether a
shareholder proposal appears on the ballot, the aim of
our climate risk engagements are twofold: 1) to gain a
better understanding, through disclosures, of the
processes that each company has in place to manage
climate risks, and 2) to understand how those risks are
likely to impact the business.
25 of the 27 companies we engaged with – including
four major global producers and refiners –
demonstrated a willingness to continue to improve their
climate-related disclosures. This, in our view, presented
the possibility for a more effective disclosure process
than what had been sought in the shareholder
proposals on those company ballots. As a result, in
those instances, we voted against the shareholder
proposals.
However, where we did not see meaningful progress
despite past engagement, or where companies
appeared insufficiently willing to respond to our
concerns – which was the case for two global
producers and refiners – we voted against
management recommendations and supported
shareholder proposals calling for greater disclosure.
These proposals received 62% and 67% support,
respectively, and our engagement continues.24
Proxy Voting
In addition to engaging directly with companies, we vote at
more than 17,000 shareholder meetings globally each year,
on over 160,000 ballot items.25
Our voting guidelines are the benchmark against which we
assess a company’s approach to corporate governance and
the items on the agenda for the shareholder meeting. Our
guidelines are applied pragmatically, and differ region by
region, often with variations at the national level. Our vote
decision is taken to achieve the outcome that we believe
best protects our clients’ long-term economic interests.
The guidelines are reviewed annually and updated as
necessary to reflect: (1) changes in market standards; (2)
evolving governance practices; and (3) insights gained from
engagement over the prior year.
As most companies are well-run with effective boards and
competent management, our starting position is to support
management unless severe governance or performance
concerns are identified. We engage in instances where we
believe issues are material to a company’s long-term
performance, and give management time to address the
issue. Often through our engagement, we gain a better
understanding of management’s approach and why it is in
the interests of long-term shareholders. Even when we
continue to be concerned, we find continuing, constructive
engagement is the best way to communicate our
perspective.
While we are generally supportive of management, we
believe board directors are elected to represent shareholder
interests, among other things. As such, much of the focus of
our proxy voting is on director accountability. Where we
have concerns that the board is not dealing with a material
risk appropriately, we may signal that concern by voting
against the re-election of certain directors we deem most
responsible for board process and risk oversight. We vote
against management (including re-election of directors) if the
company is consistently unresponsive or seems not to be
acting in the long-term interests of shareholders. Often we
vote against individual directors due to poor attendance
records and/or over-boarding.
As shown in Exhibit 7, we sometimes vote with management
and sometimes vote against management. There are also
differences in our voting patterns depending on the region in
which the company is based.
Shareholder Proposals
Shareholder proposals are one mechanism for shareholders
to put an issue on the ballot at a company’s shareholder
meeting. Although many market regulations accommodate
some form of shareholder proposal, in the US shareholder
proposals have become a feature of company annual
meetings especially for large cap companies. Under US
regulations, shareholders holding $2,000 worth of shares, or
1% of the shares entitled to vote, for at least one year, may
file shareholder proposals.
A subset of asset owners, and some asset managers use
shareholder proposals as a tool to signal investor concern to
companies about emerging issues and/or as a catalyst for
engagement.26 Larger companies tend to receive the
majority of the proposals each year, although some are filed
at smaller companies in certain sectors. Very few
shareholder proposals pass. In 2017, about 14% received
majority support from investors.27 Under SEC rules,
proposals that do not pass but receive sufficient support can
be resubmitted in subsequent years if certain resubmission
thresholds are met. Although most shareholder proposals
are non-binding, such that management do not have to act
even on those proposals that pass, proxy advisory services
and some investors may seek to penalize a company that
fails to address proposals with increasing or majority
shareholder support, often by voting against directors
standing for election.
9
BlackRock Investment Stewardship Report: 2017 Voting and Engagement Report (available at
https://www.blackrock.com/corporate/literature/publication/blk-2017-annual-voting-and-engagment-statistics-report.pdf).
Region
Total Number of
Meetings Voted
Total Number of
Proposals Voted
% of Meetings Voted
Against One or More
Management
Recommendations
% of Proposals Voted
Against Management
Recommendation
United States 4,048 33,835 26% 9%
Americas (ex-US) 1,138 8,925 46% 12%
United Kingdom 853 11,455 20% 3%
EMEA (ex-UK) 2,383 33,464 53% 11%
Japan 2,220 22,737 41% 6%
Asia-Pacific (ex-Japan) 6,667 53,045 36% 10%
Total 17,309 163,461 37% 9%
Exhibit 7: BlackRock Voting Statistics (July 1, 2016 to June 30, 2017)
Under Securities and Exchange Act Rule 14a-8, companies
can exclude from the ballot proposals that do not meet
certain procedural requirements or can seek ‘no action relief’
from the SEC to exclude certain proposals.28 The most
common reasons this relief is granted are if the proposal is
in direct conflict with a management proposal or the
company has already substantially implemented what the
proposal seeks to address.
Companies can also discuss shareholder proposals with its
proponents, and if an agreed upon outcome can be reached
in advance of the vote, the shareholder could withdraw the
proposal. Withdrawals of shareholder proposals occur with
some frequency. For example, of the 608 shareholder
proposals filed in the 2017 Form N-PX filing year, 123
(20.2%) were withdrawn.29
With respect to BlackRock’s approach to shareholder
proposals, our engagement on material ESG issues does
not begin or end with a vote on a shareholder proposal.
During our direct engagements with companies, we address
the issues covered by any shareholder proposals that we
believe to be material to the long-term financial returns of
that company. Where management demonstrates a
willingness to address the material issues raised, and we are
satisfied with the progress being made, we will generally
support the company and vote against the shareholder
proposal. Sometimes, proposals we might have otherwise
supported are withdrawn from company ballots due to
engagement by the proponents and other shareholders that
resulted in the company voluntarily adopting additional
disclosures similar to what the shareholder proposal had
called for.
We also vote against shareholder proposals that, in our
assessment, are too prescriptive or narrowly focused, deal
with issues we consider to be the purview of the board or
management, or where the company is already reporting in
the spirit of the shareholder proposal even if not in its exact
format. Our interpretation of the gradual decline in the
number of shareholder proposals and levels of support30
over the past few years is that direct engagement is building
mutual understanding between companies and their long-
term investors on emerging issues, particularly as it relates
to “G” proposals. That said, in some instances BlackRock
supports shareholder proposals on material E, S, and G
issues when we do not see demonstrated commitment to
address investor concerns or the company has made
insufficient progress.
While BlackRock votes on shareholder proposals that are on
company ballots, we have never filed a shareholder proposal
on any company’s proxy statement or initiated a proxy fight.
In addition, BlackRock has never sought a seat on a public
company board as part of its stewardship activities.
Data-Driven Discussion of Voting Records
Voting records of registered US mutual funds are public.
Every August all mutual funds are required to file a full voting
record for each US registered mutual fund on Form N-PX
with the SEC. As part of our commitment to transparency,
BlackRock includes links to those filings on our investment
stewardship website. The discussion in this section is based
on publicly available data for US companies in the Russell
3000 Index, followed by a brief discussion of shareholder
proposals as well as BlackRock’s approach to voting.
BlackRock votes on thousands of company-sponsored ballot
items and shareholder proposals in the US each year.
Management proposals often relate to routine matters such
as the reappointment of auditors. Most asset owners and
asset managers including BlackRock are usually supportive
of management on such routine proposals. In analyzing
voting data, the presence of tens of thousands of routine and
non-controversial votes can increase correlations between
the voting statistics of various shareholders, even if they
take significantly different approaches to proxy voting, and
investment stewardship more generally. To put this in
perspective, in 2017, there were nearly 28,000 ballot
items on proxies of Russell 3000 companies, of which
more than 27,000 were management proposals. In certain
instances, the inclusion of non-controversial ballot items in
analyses of voting data has resulted in the misperception
that the voting records of most large asset managers are
highly correlated amongst asset managers and with the
recommendations of proxy advisors. As demonstrated in
Exhibit 8, this is not the case with respect to more
controversial votes, like shareholder proposals.
Shareholder proposals tend to be more contentious than
management proposals. These proposals receive greater
public and media coverage, amplifying their non-routine
nature. As a result, looking at data on shareholder proposals
can provide greater insight into the variation in voting
records and approaches to investment stewardship among
different types of investors. As discussed in the previous
section, when shareholder proposals are on the ballot, we
evaluate each on its merits in the context of materiality to the
company’s long-term financial performance.
As highlighted in Exhibit 8, based on a review of shareholder
proposals that were voted on in the 2017 SEC Form N-PX
filing34 year by asset managers who held shares in
companies in the Russell 3000 Index, the voting patterns
differ considerably across various asset managers and
the managers’ records differ strongly when compared to
ISS recommendations. Exhibit 8 is based on public filings
by US registered mutual funds; this data is regularly
analyzed by parties interested in voting such as academics,
non-governmental organizations (NGOs), the media, and
corporate advisory firms.
10
11
Source: ISS Analytics, BlackRock Analysis. Based on Russell 3000 company proposals between July 1, 2016 and June 30, 2017. Each asset manager
offers different funds and the holdings from one manager to another are likely to differ somewhat. As a result, not all asset managers vote on all of the same
shareholder proposals, however, the percentages provide a useful comparison. The “n =” under each manager’s name highlights how many proposals
(management / shareholder) are included in the percentages in each graph. Depending on the agenda item that is being voted on, the proxy card provides
investors a choice of voting "for," "against," or "abstain," or "for" or "withhold." Some asset managers use an ‘abstain’ vote in instances where they view the
proposal as ordinary business, if unqualified support for a proposal is not warranted, or where companies have responded in part to the proposal. For the
most part, asset managers appear to be moving away from using an abstention when presented with the option (rather than voting “against”). In the 2017
N-PX filing year, BlackRock did not abstain from any votes on ballot items for companies included in this analysis of the Russell 3000 Index. In cases when
an institution’s funds cast two different types of votes on one proposal (a “split vote” scenario), only the vote that was cast different than management was
counted and taken into consideration. This data omits proxy contests, say on pay frequency and proxy contest director election, which accounts for the
difference in statistics between this data and our annual report data (included in Exhibit 7).
Understanding Environmental, Social, and
Governance (ESG) Considerations
The term ESG has become a catchall phrase that often
means different things to different people. This has created
the need to better define what is meant by ESG and how
ESG factors may be incorporated into portfolio management
activities conducted by asset managers. ESG is often
misunderstood to suggest that ESG is about inserting social
or political values into investment activities. This is not the
case. While some asset owners may choose to avoid certain
assets that do not align with their social or political views or
seek out ones that do, incorporating ESG factors into the
investment process is about enhancing risk-adjusted
financial performance. This is particularly true for asset
managers who have a fiduciary responsibility to their clients,
and therefore must work to maximize the long-term value of
client investments., BlackRock’s number one goal is to
maximize long-term value for our clients. Asset managers
cannot utilize client assets to push their own social or
political views, though they may offer socially responsible
investment (SRI) strategies where clients specifically request
these strategies. Considerations of material sustainability
insights are incorporated into portfolio management in
different ways, as discussed below.
Exhibit 8: Inclusion of Routine Management Proposals Increases Misperception of Similarities in
Voting Records
The BlackRock Investment Institute recently issued a report
entitled Sustainable Investing: A “Why Not” Moment, which
explores the key ways that incorporating sustainable
investing insights into portfolios can improve outcomes.31 In
addition, the paper highlights deficiencies in existing ESG
data, which requires going beyond headline figures such as
ESG scores to understand the investment implications of a
given ESG factor.
Integrating ESG Insights into Investment Processes
Business-relevant sustainability issues (including those
related to ESG matters) can contribute to a company’s
sustainable long-term financial performance. Companies
that manage sustainability risks and opportunities well tend
to have stronger cash flows, lower borrowing costs and
higher valuations, as concluded in a study conducted by
MSCI.32 Another study suggests US firms with strong track
records on key sustainability metrics have significantly
outperformed those with poor report cards.33 Thus,
incorporating these considerations into the investment
research, portfolio construction and stewardship process can
enhance long-term risk-adjusted returns.
12
Differences between: Activist Investors, Active Managers, and Active Engagement
All asset managers, whether following absolute return,
relative return, factor, or index strategies, have the ability
to vote proxies based on the number of shares they hold
across various portfolios where clients have delegated
voting authority to the asset manager. One of the
concerns raised by commentators over the past decade
has been that “index managers” should not be passive
with regards to engagement with the companies whose
stocks the index funds hold.35
Over the past decade, there has been increasing
pressure from some commentators and policy makers for
asset managers and asset owners to engage with
companies on a variety of topics, including long-term
performance and ESG issues.36 Some have gone as far
as to state that “the current level of the monitoring of
investee companies and engagement by institutional
investors and asset managers is often inadequate and
too focused on short-term returns, which may lead to
suboptimal corporate governance and performance of
listed companies.”37
Activist investors
Activist investors are primarily private fund managers
whose strategy is to take a large position in a company
and then vigorously advocate for significant corporate
changes. The activist might seek board seats or
encourage management to consider a merger or break
up a company into multiple entities. While they are often
criticized for advocating for corporate strategies that
maximize short-term profits rather than taking a longer-
term view, activists argue that they unlock value for
shareholders.
One of the concerns that has been raised is that index
funds prevent activists from improving companies. In the
case of BlackRock, we sometimes support activists and
sometimes support management. In the 2017 N-PX filing
year, BlackRock supported 5 of 27 proxy contests, or
approximately 19% of proxy contests.
Some investors actively use the shareholder proposal
process to promote issues that are considered by some
to be social or political issues. These investors tend to be
the faith-based, public, and labor funds that are actively
engaged investors who may be focused on outcomes
beyond governance or sustainable long-term
performance. Although referred to as “activists”, these
investors are different from the activists focused on
financial and strategic corporate change.
Active managers
Active managers can pursue a variety of different
investment strategies that seek to achieve returns
above and beyond those returns provided by a
representative market index. Some active strategies are
designed to beat the performance of a benchmark
within the confines of various risk parameters, while
other strategies focus on absolute return. In the course
of managing active portfolios, portfolio managers may
view engagement and proxy voting as a means of
encouraging a particular outcome at a company that is
aligned with their investment views. At BlackRock, this
sometimes results in active portfolio managers voting
differently than other BlackRock portfolios (i.e., index
funds).
While there are a variety of active investment styles,
active managers do not generally seek seats on the
boards of portfolios companies. UCITS for example,
effectively prohibit managers from taking a board seat
or controlling vote.38
In voting their proxies, some managers perform their
own analysis and may engage directly with the
companies in their portfolios; others rely extensively on
proxy advisory services. Importantly, if an active
manager is unhappy with the management of a given
company, he/she can reduce his/her position or sell the
company’s shares entirely.
Engagement by Index Managers
In contrast, an index fund will hold a stock for as long
as it remains in the benchmark. Index fund managers
engage with companies and vote their proxies in order
to express their views, focusing on the long-term value
of the company. In the paper, “Engagement: The
Missing Middle Approach in the Bebchuk-Strine
Debate,” Matthew Mallow and Jasmin Sethi explain that
one can have active engagement with a company
without being an activist.39 The paper “Passive
Investors, Not Passive Owners” finds that index
investors improve corporate governance practices at
companies.40 Index managers generally limit
engagement to corporate governance topics such as
the qualifications of directors, the time they have to
devote to their duties, executive pay, or material ESG
issues.
13
Voting data is more nuanced than threshold reporting data
Another set of data that is often referenced when
considering the voting power of an asset owner or
asset manager are regulatory threshold disclosures
filed by asset owners and asset managers (including,
for institutional investors, Form 13F filings in the US).41
However, voting data is more nuanced than threshold
reporting data. As discussed below, these nuances
can have material implications for the interpretation of
threshold data.
First, for asset owners investing directly in company
stock, threshold reporting data is helpful in
understanding their economic ownership of the stock.
The same is not the case for asset managers because
threshold data reflects assets under management in
the case of asset managers, rather than economic
ownership of the shares. Asset managers are required
by regulations in various jurisdictions to submit
threshold disclosures for all AUM over which the
manager exercises investment and/or voting discretion.
This means that the threshold reporting numbers of
asset managers generally reflect aggregate holdings of
the stock of an individual company that may be held in
multiple portfolios, including a broad range of mutual
funds and separate accounts of diverse asset owner
clients. In practice, dozens or even hundreds of
portfolios – using different investment strategies – at a
single asset manager may each own stock in the same
company.
Second, threshold reporting data is often misinterpreted
as a proxy for asset manager voting power in a given
company. For example, in BlackRock’s case, threshold
reporting overestimates the amount of shares over which
BlackRock has voting authority. Simply put, threshold
reporting aggregates equity holdings across all equity
portfolios managed by BlackRock, even though BlackRock
does not have voting authority for all client accounts.
Specifically, some of our equity separate account clients
choose not to delegate voting authority to BlackRock. We
estimate that approximately one-quarter of equity separate
account assets managed by BlackRock do not delegate
voting authority to BlackRock. This represents
approximately 9% of assets in equity mandates managed
by BlackRock. In addition, there are certain companies for
which BlackRock is required to outsource voting to an
independent fiduciary due to perceived or potential
conflicts of interest as well as to comply with certain
regulatory requirements. We estimate that across equity
holdings managed by BlackRock, approximately 8% of
AUM is outsourced to an independent fiduciary to vote.
In addition, not all BlackRock portfolios vote the same
way. BlackRock retains voting authority for substantially all
commingled funds, however, active portfolio managers
reserve the right to vote their shares differently than
BlackRock’s index portfolios and sometimes they exercise
this right. As of March 31, 2018, approximately 9% of the
equity assets managed by BlackRock are managed in
active investment strategies.
Our activities to integrate sustainability considerations into
the investment process mirror the diversity of clients we
serve, as well as the range of investment strategies and
asset classes we offer. Across BlackRock, we provide all of
our investment teams with data and insights to keep them
well-informed of sustainability considerations. Equipped with
the necessary data and tools, our active portfolio managers
are able to bring decision-useful ESG information into their
investment processes, discounting or emphasizing this
information as they would any other financial input.
ESG and Investment Stewardship
Our clients are long-term investors, as demonstrated by the
fact that about two-thirds of the assets BlackRock manages
are dedicated to retirement purposes. It is over the longer
term that ESG risks and opportunities tend to be material
and have the potential to impact financial returns. Just as we
expect the companies in which we invest to understand the
macroeconomic and industry trends in which they operate,
we believe that a company’s awareness of regulatory and
societal trends helps drive long-term performance and
mitigates risk. The best companies ensure that their
investors, as well as other stakeholders in the company,
have enough information to understand the drivers of, and
risks to, long-term financial performance.
Unlike our actively managed investment strategies, our
index portfolio managers do not have the discretion to add or
remove a company’s securities from the portfolio as long as
that company remains in the relevant index. As such, for
index investing, investment stewardship activities are the
mechanism available to asset managers to integrate and
advance material sustainability-related insights. That said,
asset owners can choose to invest in specialized indexes
(as shown in Exhibit 5) that embed ESG factors into the
index construction rules. At BlackRock, index investment
mandates represent approximately 90% of our equity
AUM.42 BlackRock’s investment stewardship efforts benefit
from firm-wide data and insights on sustainability-related
issues.
At BlackRock, we focus on those ESG issues that we
believe have a material impact on long-term financial
performance for companies in which our clients are
shareholders. While the body of research and historical
evidence is most robust for a set of “G” issues, there is
growing evidence that “E” and “S” issues can affect long-
term financial performance.43
Sustainable Investment Solutions
Some asset owners choose to pursue investment strategies
that incorporate sustainability insights as a central theme to
mitigate risk and enhance long-term returns. Some of these
products can also be used by clients to align their financial
investments with their values by removing exposure to
specific investments, or by generating positive social
outcomes alongside market rates of return. We seek to
deliver sustainable investment solutions that address a
range of client motivations, empowering our clients to
achieve their financial objectives.
BlackRock offers clients sustainable investment solutions
that range from investments in green bonds and renewable
infrastructure, to thematic strategies that allow clients to
align their capital with the UN Sustainable Development
Goals. In addition, BlackRock is the largest provider of
sustainability-themed ETFs, including the industry’s largest
low-carbon ETF, and we manage one of the largest
renewable power funds globally. With deep expertise in
alpha-seeking and index strategies, across public equity and
debt, private renewable power, commodities and real asset
strategies, we are continuing to build scalable products and
customized solutions for clients across asset classes.
Conclusion
At BlackRock, we have a responsibility to generate the
sustainable, long-term returns that our clients need to meet
their financial goals. We believe in the value of direct
engagement with the companies that we invest in on behalf
of our clients, and we are continuing to invest to build our
capabilities in this area. We are also leveraging new
technology and tools within BlackRock in an effort to
continually improve our investment stewardship efforts.
Simultaneously, we are expanding our Sustainable Investing
efforts, including the creation of a firm-wide research team
focused on analyzing sustainability-related data to develop
the clearest possible picture of how material ESG issues
affect risk and long-term return. Finally, we are committed to
offering clients a wide range of products that reflect their
financial needs and their investment preferences.
A number of factors have combined to create increased
interest in investment stewardship as well as in ESG issues.
As discussed in this paper, it is important to understand the
roles and responsibilities of various participants in the
investment stewardship ecosystem. This includes asset
owners, asset managers, index providers and proxy
advisors. Often the preferences of asset owners drive critical
decisions around asset allocation decisions, ESG policies,
and voting policies. From an asset manager perspective, it is
important to consider material ESG issues as part of the
investment process, including investment stewardship. In
addition, asset managers need to offer products that appeal
to clients. Increasingly, clients are asking for ESG-oriented
products, and often these are associated with ESG-oriented
indexes.
Investment stewardship encompasses both engagement
with companies and the voting of proxies. In a given year,
there are thousands of ballot items that need to be
considered and voted upon. The vast majority of these are
routine management proposals that garner high levels of
support. A review of voting data on proposals – both
management and shareholder – for companies represented
in the Russell 3000 Index shows that the inclusion of routine
management proposals increases similarities in voting
records across the industry. However, when we look at more
controversial proposals like shareholder proposals, the
voting patterns differ considerably across the largest asset
managers and the managers’ records differ strongly when
compared to ISS recommendations. BlackRock takes an
engagement-first approach, emphasizing direct dialogues
with companies on issues that have a material impact on
financial performance. In voting, we carefully consider each
ballot item.
Investment stewardship and sustainable investing are both
areas that are evolving industrywide. BlackRock is
committed to investing in these areas as we look to generate
long-term sustainable performance for our clients.
14
Endnotes
1. Unless otherwise specified, voting data cited in this paper are based on 2017 Form N-PX filing year for Russell 3000 companies. The Form N-PX filing year runs from
July 1, 2016 to June 30, 2017. The Russell 3000 is a capitalization-weighted stock market index maintained by the FTSE Russell that seeks to be a benchmark of the
US stock market. It includes the largest 3,000 publicly held US companies.
2. For more information about different types of asset owners, see BlackRock, ViewPoint, Who Owns the Assets? Developing a Better Understanding of the Flow of
Assets and the Implications for Financial Regulation (May 2014), available at http://www.blackrock.com/corporate/en-us/literature/whitepaper/viewpoint-who-owns-the-
assets-may-2014.pdf (“Who Owns the Assets ViewPoint”).
3. Separate accounts are typically utilized by large institutional asset owners.
4. See McKinsey & Company, Strong Performance but Health Still Fragile: Global Asset Management in 2013. Will the Goose Keep Laying Golden Eggs? (2013).
5. In certain instances, performance fees are also applied. This is more common for hedge funds. The scope of this paper is focused on traditional diversified asset
managers, like BlackRock.
6. Asjylyn Loder, The Wall Street Journal, Why $39 Billion of Stocks Traded in One Second on Friday (Jun. 24, 2018), available at https://www.wsj.com/articles/why-39-
billion-of-stocks-traded-in-one-second-on-friday-1529845203.
7. Source: Barclays Capital
8. S&P Dow Jones Indices Announces Decision on Multi-Class Shares and Voting Rules (Jul. 31, 2017), available at https://www.spice-indices.com/idpfiles/spice-
assets/resources/public/documents/561162_spdjimulti-classsharesandvotingrulesannouncement7.31.17.pdf?force_download=true.
9. FTSE Russell Voting Rights Consultation – Next Steps (Jul. 2017), available at
http://www.ftse.com/products/downloads/FTSE_Russell_Voting_Rights_Consultation_Next_Steps.pdf.
10. MSCI, Temporary Treatment of Unequal Voting Structures in the MSCI Equity Indexes (Jan. 2018), available at
https://www.msci.com/documents/1296102/5603800/TemporaryTreatment.
11. MSCI, Should Equity Indexes Include Stocks of Companies with Share Classes Having Unequal Voting Rights? (Jan. 2018), available at
https://www.msci.com/documents/1296102/8328554/Discussion+Paper_Voting+rights.pdf/d3ba68f1-856a-4e76-85b6-af580c5420d7.
12. Reuters, Index provider MSCI delays decision on unequal voting rights stocks (Jun. 21, 2018), available at https://www.reuters.com/article/us-funds-msci-rights/index-
provider-msci-delays-decision-on-unequal-voting-rights-stocks-idUSKBN1JH3AH.
13. The influence of proxy advisory firms was highlighted in “The Role of Proxy Advisory Firms” by Nadya Melenko and Yao Shen. Their study concludes that an ISS
recommendation against say-on-pay proposals led to a 25 percentage point reduction in say-on-pay voting support.
14. The Corporate Governance Reform and Transparency Act of 2017 was passed in the House in December 2017 and is under review in the Senate. See H.R. 4015,
115th Congress. See also Letter from Senate Banking, Housing, and Urban Affairs Committee to ISS (May 9, 2018), available at
http://www.wlrk.com/docs/SenateBankingCommitteeMembersInstitutionalShareholderServices.pdf; Letter from Senate Banking, Housing, and Urban Affairs Committee
to Glass Lewis (May 9, 2018), available at http://www.wlrk.com/docs/SenateBankingCommitteeMembersGlassLewisandCompany.pdf; Testimony by Gary Retelny,
President and CEO of ISS (Jul. 12, 2018), available at https://corpgov.law.harvard.edu/2018/07/12/iss-senate-hearing-statement/.
15. SEC, Staff Legal Bulletin No. 20, Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy
Advisory Firms (Jun. 30, 2014), available at https://www.sec.gov/interps/legal/cfslb20.htm. The DoL’s position is that “the fiduciary act of managing plan assets which
are shares of corporate stocks includes decisions on the voting of proxies and other exercises of shareholder rights.” The DoL has also recognized that “fiduciaries may
engage in other shareholder activities intended to monitor or influence corporate management where the responsible fiduciary concludes that there is a reasonable
expectation that such monitoring or communication with management…is likely to enhance the value of the plan’s investment in the corporation, after taking into
account the costs involved.” The DoL’s view is that “proxies should be voted as part of the process of managing the plan’s investment in company stock unless a
responsible plan fiduciary determined that the time and costs associated with voting proxies with respect to certain types of proposals or issuers may not be in the
plan’s best interest.” See DoL, Field Assistance Bulletin No. 2018-01 (Apr. 23, 2018), available at https://www.dol.gov/agencies/ebsa/employers-and-
advisers/guidance/field-assistance-bulletins/2018-01; DoL, Interpretive Bulletin Relating to the Exercise of Shareholder Rights and Written Statements of Investment
Policy, Including Proxy Voting Policies or Guidelines (Dec. 29, 2016), available at https://www.gpo.gov/fdsys/pkg/FR-2016-12-29/pdf/2016-31515.pdf.
16. See Paragraph 18 and Article 3g, Directive (EU) 2017/828 of the European Parliament and of the Council (‘Shareholder Rights Directive’), available at: https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017L0828&from=en.
17. BlackRock, Chairman’s Letter to Shareholders from 2017 Annual Report, available at https://www.blackrock.com/corporate/investor-relations/larry-fink-chairmans-letter.
18. Our voting and engagement policies and our statements on compliance with Stewardship Codes are available on our website at
https://www.blackrock.com/corporate/en-us/about-us/investment-stewardship/voting-guidelines-reports-position-papers.
19. See BlackRock Investment Stewardship website for annual and quarterly reports: https://www.blackrock.com/corporate/about-us/investment-stewardship/voting-
guidelines-reports-position-papers#engagement-and-voting-reports.
20. For e.g., Investor Stewardship Group founding signatory, Eumedion Best Practices for Engaged Share-Ownership signatory since March 2012, Japanese Stewardship
Code signatory since August 2014, Taiwan Stewardship Code signatory since September 2016, and UK Stewardship Code signatory since April 2010.
21. As a signatory, BlackRock submits an annual PRI Transparency Report and receives an annual PRI Assessment of that report. See for e.g., BlackRock, Annual
Principles for Responsible Investment Report, available online at https://reporting.unpri.org/surveys/PRI-reporting-framework-2017/7B02287D-F6EE-4FE7-820B-
9B4677F42569/d0cc681dfa4d45dca3d70f04bc27d284/html/2/?lang=&a=1.
22. BlackRock, investment Stewardship: 2018 Priorities, available at https://www.blackrock.com/corporate/about-us/investment-stewardship/voting-guidelines-reports-
position-papers#2018-priorities.
23. See case study 6 in our 2017 Americas Q4 report. BlackRock, Investment Stewardship Report: Americas, Q4 2017 (Dec. 31, 2017), available at
https://www.blackrock.com/corporate/literature/publication/blk-qtrly-commentary-2017-q4-amers.pdf.
24. Source: ISS Analytics. See also Rob Berridge, Ceres, Four Mutual Fund Giants Begin to Address Climate Change Risks in Proxy Votes: How About Your Funds?
(Dec. 21, 2017), available at https://www.ceres.org/news-center/blog/four-mutual-fund-giants-begin-address-climate-change-risks-proxy-votes-how-about.
15
Endnotes
25. This reflects the aggregate portfolio of companies in which BlackRock invests globally on behalf of our clients. We vote at shareholder meetings on behalf of those
clients who have delegated that responsibility to BlackRock as their fiduciary. More detailed voting and engagement statics can be found on BlackRock’s website:
https://www.blackrock.com/corporate/literature/publication/blk-2017-annual-voting-and-engagment-statistics-report.pdf.
26. Environmental and social concerns accounted for just more than half of shareholder proposals submitted at U.S. companies for the 2018 season, but with an increase
in the number of withdrawn proposals and proposals receiving majority support. See Meaghan Kilroy, Pensions & Investments, Environmental, social issues big in
proxy season (Jul. 9, 2018), available at http://www.pionline.com/article/20180709/PRINT/180709889/environmental-social-issues-big-in-proxy-season. In 2017, asset
managers investing on social and environmental criteria filed 25% of proposals, faith and mission-based asset owners filed 22%, five individual investors filed 22%,
other individual investors filed 16% and public and labor funds filed 15%. See Trevor S. Norwitz, Sabastian V. Niles, Avi A. Sutton and Anna S. Greig Wachtell, Lipton,
Rosen & Katz, LexisNexis Practice Advisor Journal, Market Trends: Shareholder Proposals (Feb. 28, 2018), available at https://www.lexisnexis.com/lexis-practice-
advisor/the-journal/b/lpa/archive/2018/02/28/market-trends-shareholder-proposals.aspx (LexisNexis article).
27. Source: ISS Analytics. Note that not all proposals that received majority support may have passed due to differences in vote tabulations.
28. SEC, Staff Legal Bulletin No. 14I (CF) (Nov. 1, 2017), available at https://www.sec.gov/interps/legal/cfslb14i.htm.
29. Source: SHP, includes shareholder proposals across companies in all indexes (data not limited to the Russell 3000). Data covers Jul. 1, 2017 – Jun. 30, 2018.
Excludes proposals omitted by the SEC, not presented, not in proxy, meeting postponed, or meeting cancelled.
30. In 2013, 820 shareholder proposals were submitted. There was a spike in 2015 to 943 proposals as a result of a campaign to encourage companies to allow
shareholders to nominate directors on the company’s ballot, so called proxy access. Since then, the numbers of proposals have fallen to 916 in 2016 and 861 in 2017.
Support for proposals over that period has fallen from 34.4% in 2013 to 25% in 2017. See LexisNexis article.
31. BII, Sustainable Investing: A “Why Not” Moment (May 2018), available at https://www.blackrock.com/corporate/literature/whitepaper/bii-sustainable-investing-may-
2018-us.pdf.
32. Guido Giese, Linda-Eling Lee, Dimitris Melas, Zoltan Nagy, Laura Nishikawa, MSCI, Foundations of ESG Investing (Nov. 2017), available at
https://www.msci.com/documents/10199/03d6faef-2394-44e9-a119-4ca130909226 (MSCI Foundations of ESG Investing Report).
33. Mozaffar Khan, George Serafeim, Aaron Yoon, Corporate Sustainability: First Evidence on Materiality (Feb. 1, 2017), available at
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575912 (Khan, Serafeim, and Yoon 2017).
34. In certain markets, proxy voting involves logistical issues which can affect BlackRock’s ability to vote such proxies, as well as the desirability of voting such proxies.
These issues include but are not limited to: (1) untimely notice of shareholder meetings; (2) restrictions on a foreigner’s ability to exercise votes; (3) requirements to
vote proxies in person; (4) “share-blocking” (requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some
specified period in proximity to the shareholder meeting); (5) potential difficulties in translating the proxy; (6) regulatory constraints; and (7) requirements to provide
local agents with unrestricted powers of attorney to facilitate voting instructions.
35. “If a large slice of institutional investor money is passive, this could mean that few of them have any interest in holding boards to account. The concern is that if boards
do not feel accountable to shareholders, incentives for good governance could wither away. Recently we have been engaging more with companies and asset
managers about the implications of this. Basically, we want to encourage all asset managers to focus on how companies are governed and how they manage risks,
and to get involved where necessary. Just over a year ago, we introduced a new stewardship code, which we call the Principles of Responsible Ownership. The
principles aim to encourage investors to constructively engage with companies and to establish clear voting policies.” See Ashley Alder, Keynote Speech at Companies
Registry Corporate Governance Roundtable, Hong Kong Securities and Futures Commission (March 13, 2017), available at
http://www.sfc.hk/web/EN/files/ER/PDF/Speeches/AIA_20170313.pdf at 5.
36. For example, see the UK Financial Reporting Council Stewardship Code, Netherlands Eumedion Best Practices for Engaged Share-Ownership, Denmark Stewardship
Code, Hong Kong Principles for Responsible Ownership, Australian Asset Owner Stewardship Code, Singapore Stewardship Principles for Responsible Investors,
South Africa Code on Responsible Investing.
37. UCITS Chapter VII, Article 56 states that “an investment company or a management company acting in connection with all of the common funds which it manages and
which fall within the scope of this Directive shall not acquire any shares carrying voting rights which would enable it to exercise significant influence over the
management of an issuing body.”
38. Matthew Mallow and Jasmin Sethi, Engagement: The Missing Middle Approach in the Bebchuk-Strine Debate (Jun. 2016), available at
https://www.blackrock.com/corporate/literature/publication/mallow-sethi-engagement-missing-middle-approach-may-2016.pdf.
39. Ian R. Appel, Todd A. Gormley, and Donald B. Keim, Passive investors, not passive owners (Sep. 2015), available at https://irrcinstitute.org/wp-
content/uploads/2015/12/Passive-Investor-Paper.pdf.
40. Note that threshold reporting is also required in many jurisdictions outside the US. BlackRock also reports threshold data to a number of non-US regulators including
the UK Financial Conduct Authority (FCA) and the BaFIN in Germany.
41. As of March 31, 2018.
42. Barclays, Sustainable Investing and Bond Returns: Research Study into the Impact of ESG on credit portfolio performance (2016), available at
https://www.investmentbank.barclays.com/content/dam/barclaysmicrosites/ibpublic/documents/our-insights/esg/barclays-sustainable-investing-and-bond-returns-
3.6mb.pdf; MSCI Foundations of ESG Investing Report; Khan, Serafeim, and Yoon 2017; Gunnar Friede, Timo Busch and Alexander Bassen, ESG and financial
performance: aggregated evidence from more than 2000 empirical studies (Dec. 19, 2015), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2699610;
George Serafeim, Harvard Business Review, Can Index Funds Be a Force for Sustainable Capitalism? (Dec. 7, 2017), available at https://hbr.org/2017/12/can-index-
funds-be-a-force-for-sustainable-capitalism; Gordon Clark, Andreas Feiner, and Michael Viehs (Mar. 2015), From the Stockholder to the Stakeholder: How
Sustainability Can Drive Financial Outperformance, available at https://arabesque.com/research/From_the_stockholder_to_the_stakeholder_web.pdf.
16
17
Related Content
• Sustainable Investing: A "Why Not" Moment, BlackRock Investment Institute, May 2018
• Investment Stewardship Report: Americas, Q1 2018
• BlackRock Investment Stewardship Engagement Priorities for 2018, Mar. 2018
• BlackRock Investment Stewardship Proxy Voting Guidelines for US Securities, Feb 2018
• Investment Stewardship Report: Americas, Q4 2017
• ViewPoint - BlackRock: Worldwide Leader in Asset and Risk Management, Nov. 2017
• BlackRock Investment Stewardship Global Corporate Governance and Engagement Priorities, Oct. 2017
• ViewPoint - Index Investing Supports Vibrant Capital Markets, Oct. 2017
• ViewPoint - Index Investing and Common Ownership Theories, Mar. 2017
• ViewPoint - Exploring ESG: A Practitioners Perspective, Jun. 2016
• ViewPoint - Who Owns the Assets? Developing a Better Understanding of the Flow of Assets and the Implications for Financial
Regulation, May 2014
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